China Imports add to Slowing Growth Narrative

If the state of China's economy was to be judged solely on the strength of imports of major commodities, it would be a reasonable conclusion that things were pretty much fine.

April imports of crude oil hit a record high, iron ore imports were slightly down but the year-to-date figure is still in positive territory, and copper arrivals increased from the prior month.

But look a little further into the figures and concerns start to arise, perhaps not to the extent that China's economy is in deep trouble, but enough to suggest growth may be slowing more than the authorities may want.

Crude oil imports reached 7.37 million barrels per day (bpd), a gain of 8.6 percent from the year-earlier month and 13 percent from March. In the first four months of the year, crude imports were about 6.73 million bpd, a jump of 7.8 percent over the same period last year.

This would seem unambiguously strong, but the picture does alter when net imports of refined fuels and stockpiling of crude are taken into account.

China's fuel exports in April were about 659,000 bpd, an amount slightly higher than fuel imports, according to calculations based on customs data.

This matters because fuel exports tend to be mainly high-value gasoline and diesel, while the imports tend to be low-value fuel oil used as a feedstock in small refineries that aren't licensed to import their own crude.

What this means is that China's crude imports are being boosted by higher refinery processing, and some of this increased production is simply making its way back into the regional products market.

It's also likely that as much as 335,000 bpd of crude went into storages in the first quarter as China fills the second phase of its strategic stockpiles.

While Beijing doesn't release much information on its stockpiling, some analysts believe available storages are now nearly full and more will only be ready for filling toward the end of this year.

This could lead to a pullback in China's crude imports, at least for the next few months.

IRON ORE STEADY

Iron ore imports fell a touch from March levels, dropping 0.4 percent to 80.21 million tonnes in April, but year-to-date imports rose 0.7 percent.

That doesn't look too bad, considering the soft state of steel demand and commentary from both the China and global steel associations that output has likely peaked in the world's biggest producer, and will decline modestly this year.

In the past 12 months, iron ore imports have been above 80 million tonnes in five months, but in some ways they should perhaps be even stronger.

A flood of supply saw spot prices drop to the lowest on record in April, but so far a strong demand response from Chinese steel mills has been lacking.

The modest year-to-date growth in iron ore imports suggests steel output is steady at best and also that the global iron ore mining giants are perhaps finding it harder than they would have hoped to displace higher-cost domestic output in China.

Also, China's steel exports have continued to surge, rising 10.9 percent in April from the prior month, taking the year-to-date increase to 32.7 percent from a year ago.

Copper imports also presented a mixed picture, with arrivals of anode, refined copper, alloys and semi-finished products rising 4.9 percent from March to 430,000 tonnes, the highest monthly total since April last year.

But imports in the first four months are down 14 percent, suggesting that demand for the industrial metal remains soft.

However, it's worth noting that imports of copper ores and concentrates, while down 21.2 percent in April from March, are up 9.6 percent year-to-date.

This is a sign of increased smelting and refining in China, and the changing nature of the trade in the world's largest copper user.

Coal imports rose 17 percent in April from March, but were still down 26.4 percent from the same month in 2014 and are a massive 37.7 percent lower in the first four months of 2015 over the same period last year.

In a strange twist, this may not be quite as bad from an economic standpoint as it first appears.

Firstly, it appears that China is being successful in reducing coal's share in the energy mix, and secondly, China is using energy more efficiently.

Energy consumption per unit of gross domestic product fell by 5.6 percent in the first quarter of 2015 from the same period last year, the China Daily has reported, citing Zhang Yong, chairman of the National Development and Reform Commission.

Improved energy efficiency helps explain why the economy can still be growing even though power generation dropped 0.1 percent in the first quarter from a year earlier.

Overall, the commodity import data for April fit in with a narrative of slowing growth in China, but not quite the rapid loss of momentum that many in financial markets fear.
 

By Clyde Russell